Most people have a fixed rate home mortgage in mind when they are applying for a home loan. They are the simplest and most common product on the market today. And probably have been since the inception of mortgage lending. As you might imagine by its name, with a fixed rate home mortgage the interest rate you pay will never change over the life of the loan. There is no need to worry about or attempt to calculate things like indexes, caps, margins or change dates because those terms apply to adjustable rate loans and are not applicable to fixed mortgages.
The primary benefit of the fixed rate home mortgage is the stability of the monthly payment. While the principal and interest calculations will vary. The payment that the borrower makes every month will remain constant until the loan is paid off. Should rates go up, adjustable rate borrowers will fell the consequences through higher monthly home mortgage payments, while fixed-rate home owners can relax because their payments doesn't change. Fixed-rate borrowers don't need to concern themselves with which way the market is headed, though it’s properly a good idea to pay attention in case a drop in rates presents an opportunity to refinance. But for the most part, it's a good stable choice that makes it not only popular with the mortgagors' but the mortgagees’ as well.
The major down side of a fixed-rate home mortgage the way I see it is the premium that is added to the interest rate visa vie the arm. If the intention is to only borrow the money for 5 years, why pay the premium for a 15 or 30 year fixed rate home mortgage when a 5 year arm is available with a better rate?
